15 Old Square, Lincoln’s InnLondon WC2A 3UE

taxchambers@15oldsquare.co.uk

www.taxchambers.com

Amanda Hardy QC

November 2017

• Rangers: RFC 2012 Plc (in liquidation) (formerly The Rangers

Football Club Plc) (Appellant) v Advocate General for Scotland

(Respondent) (Scotland) [2017] UKSC 45.

• On appeal from [2015] CSIH 77.

• Judges: Lord Neuberger (President), Lady Hale (Deputy President),

Lord Reed, Lord Carnwath, Lord Hodge.

• De Silva: R (on the application of De Silva and another) (Appellants)

v Commissioners for Her Majesty's Revenue and Customs)

(Respondent) hearing: 22 June 2017 (judgment awaited).

• Judges: Lord Neuberger, Lord Reed, Lord Kerr, Lord Hughes, Lord

Hodge.

2

• RFC 2012 Plc (“RFC”) was a member of a group of companies whose

parent company was Murray International Holdings Ltd.

• By a deed dated 20 April 2001, Murray Group Management Ltd,

which was also a member of the group, set up a trust known as the

Remuneration Trust (“the Principal Trust”).

• When a group company wished to benefit an employee it made a

payment to the Principal Trust.

• On payment, the employing company asked the trustee of the

Principal Trust to resettle the sum on to a sub-trust and requested

that the sub-trust income and capital should be applied in

accordance with the employee’s wishes.

3

• The trustee of the Principal Trust had a discretion whether to

comply with those requests, but, in practice, the trustee

without exception created the requested sub trust.

• The employee was appointed as protector of the sub-trust

with the power to change its beneficiaries.

• When RFC negotiated the engagement of a footballer, RFC

would explain the sub-trust mechanism, in particular, that the

prospective employee could obtain a loan of the sum paid to

the sub-trust from its trustee which would be greater than the

payment net of tax deducted under PAYE if he were to be paid

through RFC’s payroll.

4

• The trust fund would be held for the benefit of the beneficiaries of

the sub-trust, being members of the footballer’s family whom he

specified.

• On the footballer’s death, the loans and interest would be

repayable out of his estate, thereby reducing its value for

Inheritance Tax purposes.

• RFC used the same mechanisms in paying discretionary bonuses to

its senior executives.

5

• The Income Tax (Earnings and Pensions Act) 2003 (“ITEPA”) governsRFC’s liability to income tax on employment income during therelevant tax years from 2003/04 to 2008/09.

• Section 6 imposes a tax on “general earnings”.• Section 7 defines “general earnings” by reference to section 62.• Section 62(2) provides

“[E]arnings, in relation to an employment, means

(a) Any salary, wages or fee,

(b) Any gratuity or other profit or incidental benefit of any kindobtained by the employee if it is money ormoney’s worth, or(c) Anything else that constitutes an emolument of theemployment”.

6

• The Income and Corporation Taxes Act 1988 (“ICTA”) applied in the

tax years 2001/02 and 2002/003.

• The relevant provisions in ICTA, under which income tax is charged

on “emoluments”, are essentially to the same effect as those in

ITEPA.

• In accordance with the Income Tax (Employments) Regulations

1993 and the Income Tax (Pay As You Earn) Regulations 2003 (“thePAYE Regulations”), employers who pay emoluments or earnings

which are assessable to tax are required to deduct income tax from

their payments to their employees under the “pay as you earn”(“PAYE”) regime.

7

• Under the PAYE Regulations, HM Revenue and Customs

Commissioners determined that RFC had failed to pay income

tax and National Insurance Contributions (“NICs”) on the sums

paid to the trusts as remuneration.

• The parties to the appeal agreed that the determination of

the appeal in relation to income tax governs the liability to

NICs.

8

• The First-tier Tribunal (“the FTT”) (Kenneth Mure QC, Dr Heidi Poon

and Scott Rae WS) held (by a majority, Dr Heidi Poon dissenting)

that the scheme was effective in avoiding liability to income tax and

NICs because the employees had only received a loan of the

moneys paid to the trusts.

• The Upper Tribunal (Tax and Chancery Chamber) (Lord Doherty)

upheld the FTT’s decision.

• The Inner House (Lords Carloway, Menzies and Drummond Young)

allowed HMRC’s appeal. It held that income derived from an

employee’s work is assessable to income tax, even if the employee

agrees that it be redirected to a third party.

9

• “The central issue in this appeal is whether it is necessary thatthe employee should himself or herself receive, or at least be

entitled to receive, the remuneration for his or her work in

order for that payment to amount to taxable earnings”.

• Is that the right question?

• Result: the Supreme Court unanimously dismissed RFC’sappeal. Lord Hodge gives the judgment, with which the other

Justices agree.

10

• Lord Hodge: three aspects of statutory interpretation are important

in determining this appeal.

• First, provisions in the tax code imposing specific tax charges do not

militate against the existence of a more general charge to tax which

may have priority over or qualify the specific charge.

• Secondly, it is necessary to pay close attention to the statutory

wording and not be distracted by judicial glosses which have

enabled the court to apply the statutory words in other factual

contexts.

• Thirdly, a purposive approach to the interpretation of the taxing

provisions must be adopted. Para [15].

11

• As a general rule, the charge to tax on income extends to

money that the employee is entitled to have paid as

remuneration irrespective of whether it is paid to the

employee or to a third party: para [41].

• The relevant ICTA and ITEPA provisions do not restrict the

concept of earnings by requiring payment to a specific

recipient: para [38].

• Section 62(2)(b) ITEPA confines the charge on perquisites and

profits to benefits received by the employee, but there is no

such restriction in section 62(2)(a) or 62(2)(c): para [49].

12

• There is nothing in the wider purpose of the legislationexcludes from the tax charge remuneration which theemployee is entitled to have paid to a third party: para [39].

• Parliament has sought to tax remuneration paid in money ormoney’s worth. There is no rationale for excluding from thescope of this tax charge remuneration in the form of moneywhich the employee agrees should be paid to a third party:para [59].

• The Privy Council decision in Hadlee v CIR [1993] STC 294 wasidentified by the court in support of its approach. In that case,a partner in a New Zealand accountancy firm assigned aproportion of his partnership interest to a trust under whichhis family members were the main beneficiaries: para [50] .

13

• The Privy Council held that income tax was a tax on income

which was the product of the partner’s work and services and

this could not be avoided by assigning a partnership interest

to a third party.

• The Supreme Court applied the concept to conclude that any

explicit or similar reference in the legislation to ‘a payment to

an employee’ should be treated as including a payment to a

third party regardless of whether the recipient was the

employee, or in this case, a remuneration trust.

14

• For the purposes of PAYE it is necessary to determine whetherthere has been a payment of earnings from which deductions wererequired. Misplaced reliance on judicial glosses in relation to theconcept of “payment” is evident in the case law leading up to theappeal: para [51].

• There is no basis for establishing a general rule that a payment ismade for the purposes of PAYE only if the money is paid to or atleast placed unreservedly at the disposal of the employee: para[54].

• The Special Commissioners in Sempra Metals (Sempra Metals Ltd vRevenue and Customs Comrs [2008] STC (SCD) 1062) (and in Dextra(Dextra Accessories Ltd v Macdonald (Inspector of Taxes) [2002] STC(SCD) 413) had erred in excluding payments to a third party frombeing earnings: paras 55 to 57.

15

• In Sempra Metals one of the issues was whether payments by

the taxpayer company of senior employees’ bonuses into an

employee benefit trust involved the payment of earnings for

the purposes of PAYE.

• In 1995 the company established the trust by deed of

settlement in order to provide tax-efficient benefits to its

employees. The employees could choose to take their annual

bonuses in cash or have them paid to the trust. Each

employee had the choice of taking the amount allocated to

him as a loan or leaving it invested in the trust. No application

for a loan was ever refused by the trustee.

16

• After changes were made by FA 2003 which prevented the deduction fromprofits for the purpose of corporation tax of sums paid into such trustsunless they gave rise to an income tax charge on employment income anda liability to pay NICs, the company replaced the employee benefit trustwith a family benefit trust.

• The beneficiaries of the family benefit trust were members of theemployee’s family as nominated by the employee and the trust operatedin a very similar way to the earlier trust.

• Counsel for Sempra submitted that the employees had received loans andnot earnings or emoluments and the trustee had exercised the discretionsubject to which it held the funds.

• Counsel for HMRC argued that the payments to the trusts becameemoluments and earnings when they vested unconditionally in theemployees and that occurred when the trustee allocated amounts to theindividual employees or their nominated beneficiaries.

17

• He referred to Garforth for “the principle” that money placedunreservedly at the disposal of an employee amounted to payment. Thatwas one of the principles which the special commissioners adopted intheir reasoning, holding (para 142) that the existence of the trusts, thecontinuing discretion of the trustee and the existence of the loans, inthose cases in which loans were made, meant that the employees werenot free to do whatever they liked with the funds allocated to them. Theyconcluded (para 144):

• “When the appellant made payments to the trusts, no transfer of cash orits equivalent was placed unreservedly at the disposal of the employees.That means that there was no payment by the appellant of emoluments orearnings giving rise to an obligation to deduct income tax and pay it to theRevenue.”

• The references to making a relevant payment “to an employee” or “otherpayee” in the PAYE Regulations fall to be construed as payment either tothe employee or to the person to whom payment is made with theagreement of the employee: para [58].

18

• The sums paid to the trustee of the Principal Trust for a footballerconstituted the footballer’s earnings: para [64].

• The risk that the trustee might not set up a sub-trust or give a loanof the sub-trust funds to the footballer does not alter the nature ofthe payments made to the trustee of the Principal Trust: para [65].

• The discretionary bonuses made available to RFC’s employeesthrough the same trust mechanisms also fall within the tax chargeas these were given in respect of the employee’s work: para [66].

• Payment to the Principal Trust should have been subject todeduction of income tax under the PAYE Regulations: para [67].

• As the sums paid into the Principal Trust were earnings in the firstplace, the specific provisions of the tax code which deem thebenefit of loans to be earnings cannot apply : para[69].

19

• This judgment brings to a conclusion a number of years of litigationaround Employee Benefit Trusts (EBTs) and “disguised remuneration”.

• Tough line on tax avoidance.

• While it is of direct relevance to employers who have funded EBTs orEmployer-Financed Retirement Benefits Scheme (EFRBS), the breadth ofthe conclusion may also impact more mainstream arrangements such assalary sacrifice and flexible benefits.

• Effect on disguised remuneration legislation.

• Key point: remuneration should not be excluded from tax as earningsunder s62 ITEPA 2003 where the employee agrees or acquiesces that itshould be paid to a third party.

• FA 2017 changes to benefits but what about excluded/transitionalarrangements?

20

• Any hope?: Lord Hodge acknowledged that, although this was a

general rule, it should not follow that every payment made to a

third party by an employer should be affected by this treatment.

• May be more exceptions, Lord Hodge went on to name three

situations that would be excluded from this rule, specifically:

– the taxation of perquisites since ITEPA 2003 was enacted;

– the use of money to give a benefit in kind that is not earnings (it has

its own rules); and

– arrangements by which the employer’s payment provides a contingent

interest for the employee, rather than an immediately vested

beneficial interest (as was held to be the case for employees of RFC).

21

• Lord Hodge referred to the third exception and stated this was

consistent with Forde and McHugh Ltd v HMRC [2014] STC

724. Here, sums paid by an employer, other than out of an

employee’s salary, and which were to provide contingent

benefits to an employee, did not fall within the charge to NICs

(this case related to SSCBA 1992) before the contingency

occurred and any payment was made.

• Salary sacrifice?

• FNs and APNs – what to do?

22

• The appeal concerned the powers of HMRC under the Taxes

Management Act 1970 (“TMA”).

• The TMA governs the procedures for taxpayers to make returns of

their income and chargeable gains and to make claims for relief.

• It also sets out the procedure by which the HMRC can enquire into

returns and claims made by taxpayers.

• The TMA also governs when, and in what amount, a taxpayer is

liable to pay tax to the HMRC and when, and in what amounts, the

HMRC is liable to make payments to a taxpayer.

• The provisions in the TMA are fundamental to the operation of the

UK tax system as it applies to individuals (including when operating

in partnership): certainty is important.

23

• The Appellants carried on a number of trades as partners in anumber of partnerships. Those partnerships realised trading losses.The Appellants made claims to carry back specified amounts ofthose trading losses to earlier years of assessment. The claims weremade on the tax return forms for the year of assessment in whichthe losses were incurred.

• The Revenue did not open an enquiry into any of those claimsunder TMA Schedule 1A. However, the Revenue did open enquiriesinto the tax returns of the partnerships for the years of assessmentin which the losses were incurred.

• This had the automatic statutory effect of opening an enquiry intothe corresponding return of all of the partners in those partnerships(including the Appellants) for the corresponding years ofassessment.

24

• HMRC contended that, in those circumstances, it is not obliged to give

effect in full to the claims made by the Appellants.

• In addition in the First Appellant’s case, HMRC contended that he had a

liability to repay to HMRC sums previously paid by HMRC to him.

• Contract agreement. The second issue was that the partnerships in

question had appealed against amendments by HMRC to their partnership

returns and partnership statements. This appeal was made under TMA

section 50. The PSA settled those appeals on terms that the losses stated

in the partnership returns and partnership statements should be amended

to the figures set out in the PSA. By virtue of TMA section 54, that

agreement is treated as a decision of the FTT to that effect.

• UT held appellants not parties to PSA so of no effect. CA reversed:

appellants contractually bound not to assert greater losses.

25

• At the time relevant to these appeals, the use of losses sustained by

individuals, either alone or in partnership, was governed by the

Income and Corporation Taxes Act 1988 (“TA 1988”) Part X Chapter

I.

• The first way in which trading losses could be used was by making a

claim to set the losses (or a part of them) against other income of

the claimant of the year of assessment in which the loss was

incurred.

• The second possibility was to make a claim to set the losses (or part

of them) against income of the immediately preceding year of

assessment.

• Those two types of claim were provided for in TA 1988 section 380:

26

• “380 Set-off against general income

• (1) Where in any year of assessment any person sustains a loss

in any trade, profession, vocation or employment carried on by him eithersolely or in partnership, he may, by notice given within 12 months fromthe 31st January next following that year, make a claim for relief fromincome tax on –– (a) so much of his income for that year as is equal to the amount of the loss or,

where it is less than that amount, the whole of that income; or

– (b) so much of his income for the last preceding year as is equal to that amount or,where it is less than that amount, the whole of that income;

but relief shall not be given for the loss or the same part of the loss bothunder paragraph (a) and paragraph (b) above.

• (2) Any relief claimed under paragraph (a) of subsection (1) above inrespect of any income shall be given in priority to any relief claimed inrespect of that income under paragraph (b) of that subsection.”

27

• Section 380 provides for two separate claims for relief. The claimprovided for in subsection (1)(a) is sometimes referred to as a“sideways loss claim”.

• The claim provided for in subsection (1)(b) is sometimes referred toas a “carry back loss claim”. It is open to a taxpayer to choose whichclaim, or which combination of claims, to make.

• TA 1988 section 381 provides for an extended carry back loss claimwhere an individual incurs a loss in the early years of trade. In short,losses sustained in the first 4 years of trade can be carried back forup to 3 years of assessment.

• The third way in which trading losses can be used is by carryingthem forward indefinitely to be set against profits of the same trade(see TA 1988 section 385(1)).

28

• The basic provisions relating to claims are set out in TMA section 42. The

relevant provisions of section 42 are as follows:

• “42 Procedure for making claims etc.

(1) Where any provision of the Taxes Acts provides for relief to

be given, or any other thing to be done, on the making of a claim, this

section shall, unless otherwise provided, have effect in relation to the

claim.

(1A) ... A claim for a relief, an allowance or a repayment of tax shall be for

an amount which is quantified at the time when the claim is made.

(2) ... Where notice has been given under section 8, 8A or 12AA of this Act,

a claim shall not at any time be made otherwise than by being included in

the return under that section if it could, at that or any subsequent time,

be made by being so included..

29

(5) The references in this section to a claim being included in a returninclude references to a claim being so included by virtue of anamendment of the return; …

(9) Where a claim has been made (whether by being included in areturn under section 8, 8A or 12AA of this Act or otherwise) and theclaimant subsequently discovers that an error or mistake has beenmade in the claim, the claimant may make a supplementary claimwithin the time allowed for making the original claim. …

(11) Schedule 1A to this Act shall apply as respects any claim ... which –(i) is made otherwise than by being included in a return undersection 8, 8A or 12AA of this Act,

(11A) Schedule 1B to this Act shall have effect as respects certainclaims for relief involving 2 or more years of assessment.”

30

• TMA Schedule 1B para 2 deals specifically with carry back loss claims:

• “Loss relief2(1) This paragraph applies where a person makes a claim requiring relieffor a loss incurred or treated as incurred, or a payment made, in one yearof assessment (“the later year”) to be given in an earlier year ofassessment (“the earlier year”).(2) Section 42(2) of this Act shall not apply in relation to the claim.

(3) The claim shall relate to the later year.

(4) Subject to sub-paragraph (5) below, the claim shall be for an amountequal to the difference between –– (a) the amount in which the person is chargeable to tax for the earlier year

(“amount A”); and

– (b) the amount at which he would be so chargeable on the assumption that effect

could be, and were, given to the claim in relation to that year (“amount B”)…

31

(6) Effect shall be given to the claim in relation to the later year, whether

by repayment or set-off, or by an increase in the aggregate amount given

by section 59B(1)(b) of this Act, or otherwise.”

• This paragraph applies to claims under TA 1988 section 380(1)(b) and

381(1).

• Schedule 1B paragraph 2(2) disapplies the requirement in section 42(2)

that a claim should be made in a “return”. In fact, a carry-back loss claim

cannot be part of the “return” for either the later year or the earlier year.

• Paragraph 2(3) then provides that the claim relates to the later year. This is

relevant to the time limits for opening an enquiry into the claim (see TMA

Schedule 1A para 5(2)(b) at paragraph 17 below). It has nothing to do with

the question whether the claim must (or can) be part of a “return” for thelater year.

32

• The amount of any carry-back loss claim is a sum computed inaccordance with paragraph 2(4).

• Paragraph 2(6) then provides that effect “shall be given to theclaim” either by repayment of that amount, set-off of that amountor by an increase in the payments on account treated as made bythe taxpayer (under TMA section 59B(1)(b)) by that amount.

• Effect could be given to the claim by a combination of two or moreof those options.

• Paragraph 2(6) also refers to giving effect to the claim “otherwise”.• HMRC is required to give effect to the claim (“shall”). Further, effect

must be given to it unless there is a valid enquiry into the claim. If aclaim is validly amended, the Revenue must give effect to theamended claim.

33

• TMA Schedule 1A concerns claims made otherwise than in a

return (see TMA section 42(11)).

• This Schedule will apply to all carry-back loss claims as those

claims cannot be part of a “return”. Schedule 1A provides a

complete code for:

– (a) making the claims;

– (b) enquiring into the claims;

– (c) amending the claims; and

– (d) giving effect to the claims.

34

• Schedule 1A paragraph 4 is a key provision in the appeal:

• “4(3) Giving effect to claims and amendments

• Subject to sub-paragraphs (1A), (3) and (4) below, and to any other provisionin the Taxes Acts which otherwise provides, an officer of the Board or theBoard shall, as soon as practicable after a claim other than a partnership claimis made, or such a claim is amended under paragraph 3 above, give effect tothe claim or amendment by discharge or repayment of tax.

• Where any such claim or amendment as is mentioned in sub- paragraph (1) or(2) above is enquired into by an officer of the Board -

• (a) that sub-paragraph shall not apply until the day on which, by virtue ofparagraph 7(1) below, the enquiry is completed; but

• (b) the officer may at any time before that day give effect to the claim oramendment, on a provisional basis, to such extent as he thinks fit.

• (4) Nothing in this paragraph applies in relation to a claim or an amendment ofa claim if the claim is not one for discharge or repayment of tax.”

35

• Under Schedule 1A paragraph 5:

• (i) a notice of an intention to enquire under paragraph 5 must be

given in writing to the person who made the claim;

• (ii) the time limit for opening such an enquiry cannot expire before

a year after 31st January next following the year of assessment to

which the claim “relates”.

• In the case of a carry-back loss claim, the claim “relates” to the year

of assessment in which the loss accrues (i.e. the later year) (see

Schedule 1B para 2(3)). This is precisely the same time limit as

would apply for opening an enquiry into the taxpayer’s individual

tax return for that year of assessment (see TMA section 9A(2)(a),

section 8(1A) and section 9(6) below);

36

• In Cotter, the taxpayer made a carry back loss claim. The loss wasincurred in the year 2008/2009. A claim was made to carry that lossback to the year 2007/2008. The claim was made on the tax returnform for the earlier year (2007/2008).

• HMRC opened a Schedule 1A enquiry into the claim. The taxpayerargued that, since the claim was on the return form for 2007/2008,it was not a claim made otherwise than in a return and so Schedule1A did not apply. The taxpayer further argued that the appropriatecourse of action would have been for the Revenue to open anenquiry, under TMA section 28A, into his return for the year2007/2008.

• The taxpayer failed before David Richards J but succeeded in theCA.

37

• The Supreme Court allowed HMRC’s appeal.• The purpose of an individual tax return was to establish the amounts of

income tax and capital gains tax chargeable for a year of assessment andthe amount of income tax payable for that year of assessment (i.e. theself-assessment).

• Therefore, for the purposes of TMA sections 8(1), 9, 9(A) and 42(11)(a) the“return” refers only to the information in the tax return form which issubmitted for the purposes of the self-assessment for that tax: para [25].

• It was common ground in Cotter that the carry back loss claim did notaffect the self-assessment for the year 2007/2008: para [17].

• It followed that HMRC could only enquire into the claim under Schedule1A. An enquiry into the return, under section 9A or section 12AC, wouldnot enable the Revenue to enquire into the claim as it was not part of the“return”.

38

• The Supreme Court accepted HMRC’s argument that not everything

which appears in the tax return form is part of the “return”: paras[21-22].

• Cotter was only directly a decision on the return for the year to

which the loss was carried back (i.e. the earlier year). However, the

principle set out at para [25] must equally apply in relation to the

return for the year in which the loss is incurred (the later year).

• The carry back loss claim does not have any effect on the self-

assessment for either the later year or the earlier year of

assessment. Applying the principle established in Cotter, a carry

back loss claim (under either section 380(1)(b) or 381) cannot form

part of the “return” for either of those years of assessment.

39

• Stated the first issue as: “In this case, [the Revenue] openedenquiries into the partnership returns in proper time. The questionis whether that had the effect, where it was later agreed under thepartnership settlement agreement that the losses included in thepartnership returns were to be reduced, of allowing [the Revenue]to re-state the tax shown to be due from the claimants in theirrelevant individual self-assessment returns”: para [27]

• Right question? The answer to the question posed by the UT at UTDparagraph 27 is no. Common ground that the quantum of the lossdid not affect the self-assessment in each Appellant’s tax returns forthe year in which the loss was incurred.

• The Appellants’ self- assessments would remain exactly the samewhether, for example, the “true loss” was 100% of the loss claimedor was 23% of the loss claimed.

40

• UT asserted that the carry back loss claim was not “a simple ‘standalone’ claim for relief made outside a return” but was an “inchoateclaim for relief which, as a matter of substance, will only be

validated when the partnership losses are included in the partner’sindividual return for the later period, reflecting the partnership

statement for that period”: para [39].

• A carry back loss claim is a claim to carry back a quantified loss to a

specified prior year of assessment. The quantum of the loss claimed

is part of the claim (see TMA section 42(1A)). That claim is valid

(and must be given effect to) unless it is amended in accordance

with the statutory provisions for amending claims. An amendment

of the return and self-assessment has no effect on the carry back

loss claim.

41

• UT also appeared to consider that an enquiry into the carry-back claimhad to be launched “within the relevant time limit applied to the earlierstage when a claim to carry-back losses were intimated to them”: para[47].

• The claim related to the later year, the time limit for opening an enquiryran by reference to the later year. As a result, the time limit for opening anenquiry into the carry-back loss claim was exactly the same as the timelimit for opening an enquiry into the return for the year in which the losswas incurred.

• UT and the significance of the decision in Cotter. True that Cotterconcerned a carry-back loss claim made on the tax return form for theearlier year. The Supreme Court held that the claim was not part of the“return” for that year although it appeared on the tax return form (in thatcase by amendment). The reasoning by which the Supreme Court reachedthat conclusion which is relevant.

42

• Lord Hodge held, para [25]

• “the word “return”may have a wider meaning in other contexts within the1970 Act but, in my view, in the context of sections 8(1), 9, 9A and42(11)(a) of the 1970 Act, a “return” refers to the information in the taxreturn form which is submitted for “the purpose of establishing theamounts in which a person is chargeable to income tax and capital gainstax” for the relevant year of assessment and “the amount payable by himby way of income tax for that year”: section 8(1) 1970 Act ...”

• This reasoning applies equally to the later year. The carry-back loss claimdoes not affect the amounts in which the person is chargeable to incometax or capital gains tax for the later year of assessment or the amountpayable by him by way of income tax for that later year. Therefore, it is notpart of the “return” for the later year for the purposes of, in particular,TMA section 9A (which provides the power to enquire into a “return”) andsection 42 (11)(a) (which introduces Schedule 1A).

43

• Court of Appeal Decision para [2]:

• “2. The Appellant’s case in essence is that the Revenue had one

lawful and early opportunity to challenge the Appellants’ assertionof entitlement to relief by means of useable losses of the relevant

film partnerships against their income tax bill. The Appellants

contend that the Revenue did not take that one chance within the

relevant time limit and were barred from any other challenge to the

claims made; accordingly, it follows, so that the Appellants submit,

that the Appellants’ claims for loss relief became final and binding

and must be allowed by the Revenue”.

• The reference to an “early opportunity”: same view as the UT.

• Same view of relevance of Cotter.

44

• Sole purpose of a “return” (as opposed to the tax return form) is to

provide the information which is submitted for “the purpose of

establishing the amounts for which a person is chargeable to income tax

and capital gains tax” for the relevant year of assessment and “theamount payable by him by way of income tax for that year” (see TMA

section 8(1) and Cotter at paragraph [25]).

• The amounts chargeable and payable referred to in section 8(1) make up

the “self-assessment”. Therefore, the information in the “return” is only

the information which is required to produce the self-assessment.

• The figures in the return and self-assessment are binding on HMRC and

the taxpayer unless they are amended by one or other of the relevant

statutory provisions. Those provisions are TMA sections 9ZA, 9ZB, 9B, 9C,

28A, 50 and 54. There is no other way in which a return or self-assessment

can be amended. The same principles apply to partnership returns.

45

• The figure for a partner’s share of the overall partnership

profits/loss is part of the individual partner’s “return”. In order to

compute the individual partner’s self- assessment, it is necessary to

know whether the individual partner had a share in a partnership

profit (and if so, what that profit was) or a partnership loss. In the

case of a loss, there would be no figure to add into the self-

assessment. However, the figure for a partnership loss in the

individual partner’s return is not a “claim” for relief. A claim for

relief for that loss (or part of it) is a separate matter which may, or

may not, be part of the “return”.

46

• A claim, under TA 1988 section 380(1)(a), to set trading losses

against other income of the same year of assessment is part of a

taxpayer’s “return”. A sideways loss claim under that provision

reduces the amount of income chargeable to income tax (and

therefore the amount of income tax payable) for that year of

assessment.

• However, a carry-back loss claim, under TA 1988 sections 380(1)(b)

or 381, does not affect the self-assessment for that year and so is

not part of the “return”. That is why tax practitioners, and the

Revenue, refer to a carry-back loss claim as a “stand-alone claim”which gives rise to a “free-standing credit”. A carry-back loss claim

operates entirely outside the “return” and the self- assessment.

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• A claim under either TMA section 380(1)(b) or section 381 isconclusive, and the Revenue must give effect to it unless it isamended under a relevant statutory provision.

• The carry-back loss claim can only be amended under TMASchedule 1A paragraphs 3 and 7. It cannot be amended under TMAsection 28A as the claim (even if it appears on the face of the taxreturn form) is not part of the “return”.

• HMRC has no power to amend any of the carry-back loss claimsmade by either the First or Second Appellant. The amendment ofthe Appellants’ returns, under section 28B(4)(a), had no effect onthe carry-back loss claims. Therefore, the Revenue is under acontinuing obligation to give effect to the carry-back loss claimsmade by the Appellants.

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• (1) To consider wider arguments of public policy to ensure for all

taxpayers and HMRC that the self assessment regime is interpreted

in clear, certain and unambiguous terms, following the intention of

Parliament and Cotter.

• (2) To ensure legal certainty, including the interaction with

legislation introduced in FA 2014 in relation to FN and APNs.

• To ensure that as a matter of public policy the Exchequer is

protected.

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• DISCLAIMER Neither these notes nor the talks based on them nor

anything said in the discussion session(s) constitute legal advice.

They are simply an expression of the speaker's views, put forward

for consideration and discussion. No action should be taken or

refrained from in reliance on them but independent professional

advice should be taken in every case.

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Amanda Hardy QC

November 2017

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